The Demat account is a computerized storage for the safe holding of the securities in the digital format. Investors can keep the securities with the depositories through this account. While trading in a stock market, an investor needs an account that facilitates and executes the transaction. A Demat account is an account that is used for online digital trading. The Demat account meaning can be understood from its name. It can be interpreted as a Digital and Electronic Machine Account for Trading in the stock market.
The Demat account service is provided by different brokers that open an account under two major depositories. These depositories are NSDL and CDSL. This account involves different stakeholders and participants such as Depositories, depository participants, beneficial owners, and the companies.
Invest in Stock Market
When an investor enters into a stock market for the investment in the financial securities, then he/she requires to open an account through which the transaction of trading and investment can take place. To open a demat account, an investor needs to fulfill different requirements. It requires providing several documents to the depository participants. Several other requirements are also required to fulfill. The first question that arises in the mind of investors is how to open an account and how the Demat account works?
Apart from these questions, different issues are faced by investors and brokers in respect of the digital securities account.
Here are some important problems that are encountered by the investors while opening a Demat account.
Problem in the selection of the right depository participant:
Nowadays, different financial institutions and brokerage firms are providing the services of opening a Demat account at different costs and charges. These firms and brokers are classified into full-service brokers and subscription-based brokers. If you want to open an account, then you would require to analyze the charges, service, and other facilities. Selecting the right broker is not an easy task because every broker is providing advanced services at lower charges. Now you have to compare the parameters of different Demat brokers to fulfill your requirements.
Challenge in the adoption of low-cost brokers for an account:
With the increase in the number of investors, financial institutions are becoming more efficient and cost-effective. Now the brokers are charging low fees and negligible charges for the margin and transaction. Although the brokers are providing less cost account open service, various hidden charges are included in the cost structure. Here you need to analyze the cost structure of different brokers that provide service in the market. It creates a challenge.
Documentation issues while KYC process:
To open a Demat account, different documents are required to be filled with the broker and financial institutions. These documents are PAN card, Bank, and income statement, voter card, passport, and different proofs for identity. You can’t open the account without a PAN (Permanent Account Number). The KYC process enables the completion of the account opening process that requires the fulfillment of the documentation process. Without proper documentation, a Demat account cannot be verified for working.
Operational issues of the account:
After opening an account, the next issue in the mind of investors is how the Demat account will work? It includes a core digital mechanism that operates among the companies, agents, and brokers. You can buy and sell the securities after an analysis of the fundamentals. To operate the account and trade in the market, you must know the fundamentals of the market. The proper selection of the assets is again an issue with a Demat account. In short, it can be said that the Demat account can only serve as a platform to trade. You are required to analyze every aspect of the mechanism of online trading.
Thus, these are some issues and problems that are encountered by the investors while opening a Demat account.